What is more characteristic of a decentralized organization?

As more and more companies adopt remote work, flexible schedules, and fluidity in management practices, it is becoming increasingly evident that no company can ever be either fully centralized or decentralized anymore.

The degree of decentralization in business depends upon your company’s size, culture, and business model.

Franchise-based companies function as a mix of centralized and decentralized organizational structures.

While there is more autonomy given to store owners in terms of hiring and operations, certain aspects of business such as product development and marketing are reserved for senior management.

As opposed to that, retail chain companies exercise far less decentralization since there is no avenue for shared risk appetite, unlike a franchise where risk aspects can be shared between a company and its franchise owner.

Some multinational corporations can work well as decentralized business models, with multiple units functioning autonomously.

However, it is still quite difficult to introduce a more extreme level of decentralization on a larger scale since they are so deeply entrenched in the traditional centralized form of organization.

Decentralization can work extremely well for medium-size enterprises, allowing employees to pursue projects based on creativity and passion, but it will need to adapt itself to ensure operational efficiency and alignment with business goals as the business grows.

Startups can be considered too small in size to be qualified for a decentralized business structure, but it is prudent to plan and envision how the structure may evolve in tandem with the business.

A decentralized organization works just like an open floor plan in a startup and has the potential to become an incubator for massive creativity, innovation, and ownership for your team.

Decentralization is a type of organizational structure in which daily operations and decision-making responsibilities are delegated by top management to middle and lower-level mangers. This frees up top management to focus more on major decisions. For a small business, growth may create the need to decentralize to continue efficient operations. Decentralization offers several advantages, though relinquishing control may be difficult for a business owner accustomed to making all the decisions.

Greater Autonomy Empowers Employees

Employees can be empowered by having more autonomy to make their own decisions, giving them a sense of importance and making them feel as if they have more input in the direction of the organization. It also allows them to make better use of the knowledge and experience they have gained and implement some of their own ideas. Empowered employees can cut the "red tape" of an organization by taking the initiative to get the job done with a minimum of managerial approvals.

Relieving the Burden

Decentralizing takes some of the burden of daily business operations off the business owner. When the owner allows others to perform such tasks as hiring new employees or ordering supplies, this frees her up to spend more time on big-picture items, such as planning for expansion or meeting with important clients. Though it can be hard for some owners to allow this type of flexibility, the rewards can be substantial for both employees and business owners.

Preparing for Emergencies

A situation may arise where the business owner must be away from the business for an extended period time because of illness or another type of emergency. A decentralized structure provides a better chance that the organization will maintain self-sufficiency because managers and employees are accustomed to working autonomously. Give the process a test run by leaving the business for a week or two – a vacation, perhaps – and evaluating the results when you return.

More Efficient Decision-Making

A decentralized organization is able to make decisions more quickly than one with a centralized structure. A manager often can make a decision without having to wait for it to go up a chain of command, allowing the organization to react quickly to situations where fast action can mean the difference between gaining and losing a customer.

Ease of Expansion

For a growing business, decentralization can facilitate the process of expansion. For example, if expansion results in opening a new business unit in a different geographic area, decentralization allows the new unit to operate as an independent entity, meaning it can react more easily to the specific needs of the area, such as deciding to sell products that appeal to the local market.

In recent years, the latter structure has become especially popular as business leaders have begun to recognize its benefits over the arguably outdated corporate hierarchy. Opting for a decentralized organizational structure can help to relieve the vice-like grip that some leaders have over day-to-day operations and give employees more autonomy, empowering them to make more of their own decisions.

What is a Decentralized Organizational Structure?

A decentralized organizational structure is one where senior management has surrendered the authority for making certain decisions to the lower levels of the organization.

Companies operating with decentralized structures often have mid- and lower-level managers making most of the decisions rather than the senior management team. In many cases, however, decision-making authority is delegated even further down to the regular employees themselves.

While the top tier of the organization will still retain control over making significant, org-wide decisions (e.g., setting its strategic plan), most day-to-day decision-making is delegated as far down the ranks as possible.

A decentralized organizational structure works particularly well in the following scenarios:

• Where a company needs to deliver highly individualized customer service
• When a business has a vast network that can’t be controlled by upper management
• When the nature of the market means that decisions must be made quickly
• When the business model is constantly changing

It is common for businesses to start life with centralized structures and gradually decentralize as they grow. This happens as a growing workforce and burgeoning workloads pile the pressure on upper management, prompting them to delegate day-to-day tasks and decision-making to the employees below them.

What Are the Benefits of a Decentralized Org Structure?

No matter what an employee’s role is within an organization, a decentralized org structure can help them operate more independently and make their own decisions. While implementing a decentralized organizational structure can bring with it many positive returns, it requires commitment at all levels.

Some of the benefits of operating with a decentralized organizational structure include:

Upper Management Can Focus on the Long Term

A decentralized organizational structure alleviates the burden of day-to-day tasks and gives upper managers and executives more time to focus on the long-term goals of the organization, such as setting its mission and devising growth strategies.

Decisions Are Made Quickly

In contrast to a centralized organization, where decisions usually take a long time to be made, decisions in decentralized organizations are made much more quickly. This is because lower-level managers, and in many cases regular employees, have the authority to make and implement decisions without having to seek and wait for approval from higher-ups. This is beneficial in situations where quick decisions are the key to operational success.

Employees Feel More Empowered

Decentralized organizations provide employees with the opportunity to make decisions that impact their work. This serves to give these employees a sense of importance, value, and belonging within the organization, thus leading to an increase in employee engagement and a reduction in turnover. At a time when resignation activity is at an all-time high, this is crucial.

Highlights Employees for Development

Delegating decision-making authority to lower-level managers and regular employees is a great way to reveal those who potentially have the skills to progress to higher positions within the organization in the future.

What Are the Disadvantages of a Decentralized Org Structure?

Although decentralized org structures have plenty of benefits, there are some distinct disadvantages to be aware of. These include:

Potential for Less Knowledge Sharing

The delegation of decision-making can sometimes lead to divisions, departments, and individual teams operating in silos. This is bad for knowledge sharing because siloed teams are more likely to keep information such as project updates, decision-making processes, and procedures to themselves.

Teams Putting Themselves First

When lower-level managers and employees are given the power to make their own decision, there’s a good chance that over time, teams will begin putting themselves first and basing decisions on what best benefits them rather than the organization and its mission as a whole.

Difficulties in Communication and Collaboration

When teams and individuals are independent and are responsible for their own decisions, workloads, and schedules, communication can become difficult. Each manager might have their own preferences, and this can lead to confusion. Collaboration may also suffer because, with so many different managers, processes, and schedules, it can be difficult for two different teams to coordinate efforts together.

Our Tips for Implementing a Decentralized Organizational Structure

If you are going to implement decentralization, consider the following tips to ensure an effective transition that avoids the problems highlighted above:

• Promote constant feedback: The best way to gather information related to performance is to ask for feedback from lower-level managers and employees. This can be used to discover issues with management, communication, collaboration, and more.
• Keep managers in the loop: Ensure that all lower-level managers who are also decision-makers have all the relevant information that they need to ensure that their own decision-making remains on track and contributes to the organization’s overall mission.
• Create a strategy: While a decentralized organization shares decision-making responsibilities, it’s still important to have a centralized strategy that ensures everyone remains on track and works towards the same long-term goals.

Every business has to choose the structure that’s best for their overall organization, and most have a mixture of centralization and decentralization running throughout. When deciding which framework is best for your own organization, consider your long-term objectives, resources, and the industry that you operate within.

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